Horizontal specialization as a catalyst for startups

One of the most important events in the history of modern computing was the advent of "fabless" semiconductor companies. The story of fabless semi companies is similar to the recent history of internet startups: various forces led to a massive lowering of startup costs, which then led to a boom in innovation.

Before the 1980s, if you wanted to invent a new semiconductor, you had to both design and manufacturer it. This meant you had to build a large manufacturing plant, something only large companies like Intel, Motorola, and IBM could afford. Hence semiconductor design was generally not something venture-backed startups could afford.

In the 1979, two computer scientists published seminal book that argued for the separation of the design from the manufacturing of semiconductors. Followed by years of investment by DARPA and others, an industry emerged where chip designers used software ("EDA software") to design and test semiconductors and then sent standardized specifications to "foundries" that did the actual manufacturing (most of which were located in Taiwan - the largest in the world to this day is Taiwan Semiconductor Manufacturing Company).

This radically lowered the cost of designing semiconductors, and in turn led to a massive wave of startup innovation. These startups designed chips for cell phones (Qualcomm), Wifi (Atheros), graphics cards (Nvidia), and much more. Most of these companies were funded by venture capitalists and located in the Silicon Valley area.

Tech sectors tend to get really creative when they become "garage ready": a Steve Jobs and Steve Wozniak, or a Larry Page and Sergey Brin, can, with very little capital, change the world. It happened with semis in the 80s and happened in the 90s and 2000s for internet companies. Eventually it should happen to every other vertically integrated, capital intensive sector.

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Imagine if we had "fabless" gadget design or biotech research: two people in a garage could create an iPhone killer or a new cancer drug. The history of technology suggests it will happen.